Years ago when anyone with a pulse could get a mortgage loan, the primary documentation needed was proof of income, just prove you could make the payments. Consumers were also spending more and saving less which led to some poor financial choices. As a result, the credit report has reared its head again because you may make the money, but the credit report actually shows how you spend it. And its not just the credit score, it’s the debt to income ratio, new credit accounts or past delinquencies that will result in a quick denial of a mortgage application.
The idea here is that higher standards will result in fewer defaults and foreclosures in the future.
Put yourself in the best position to qualify
If you know you are going to apply for a mortgage loan in the near future:
1.) Get that debt to income ratio down (no maxed out credit cards or unnecessary revolving debt).
2.) Don’t open any new credit accounts right now.
3.) Clean up anything that is delinquent on your credit report and have a good explanation (in writing) ready.
4.) Documentation, documentation, documentation. Have it all in order and ready to produce. This would include at a minimum, two years of tax returns, bank statements, pay stubs or proof of income, retirement income information etc. Lenders will ask for what they need based on your specific situation.
Take a moment and look at yourself from the other side of the banker’s desk.
Would you take a risk on you?